South Dakota Supreme Court - 399 N.W.2d 894
In the contract law case First State Bank of Sinai v. Hyland (1987), South Dakota's Supreme Court dealt with the question of whether an oral agreement for a loan was valid under the statute of frauds. This case revolved around a father cosigning a promissory note for his son and being held responsible for the debt after the son went bankrupt.
Randy Hyland borrowed money from First State Bank of Sinai and signed two promissory notes. He failed to repay and requested an extension. The Bank agreed but demanded Randy's father, Mervin Hyland, as a cosigner. Mervin signed a new promissory note without reading it or asking questions. When Randy didn't repay and filed for bankruptcy, the Bank sued Mervin for the unpaid balance.
Mervin argued he was incompetent to sign the contract due to alcoholism, memory loss, and impaired judgment. He also claimed he didn't receive any benefit from signing the note and didn't intend to be bound by it.
The trial court ruled in favor of the Bank, finding Mervin competent, having received sufficient consideration, and intended to be bound by the note. Mervin appealed, but the South Dakota Supreme Court upheld the judgment, stating that Defendant Hyland did not meet his burden to show that he did not understand the nature and consequences of his transactions. He also did not promptly rescind the contract, as required, when he found out that he had made it.
The First State Bank of Sinai sued Mervin Hyland for payment on a promissory note he cosigned. The circuit court ruled that Mervin was not liable for payment because he was incompetent to transact business when he signed the note, rendering his obligation to the bank void. The bank appealed, and the majority opinion reversed and remanded the case, finding that the circuit court erred in its ruling. The court found that the appellant was entirely without understanding when he signed the October 20, 1981 promissory note due to his alcohol consumption. The court also found that the appellant's lack of personal care and non-participation in family life and farming business supported the voiding of the contractual relationship between the parties. The bank failed to show the appellant's subsequent ratification of the contract. The issues were whether the appellant was incompetent to transact business and whether the promissory note was void. A void contract has no legal effect, and no contract was ever created if an agreement is void at its genesis.
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